Eurozone mulls more Greek concessions

Greece’s creditors are considering concessions such as capping interest rates and extending maturities for debt

Eurozone countries should extend maturities, limit annual repayments and cap interest rates on Greece’s second bailout, along with other measures, according to a document being discussed by Athens’s creditors Monday.

The document was prepared by the eurozone’s bailout fund, European Stability Mechanism, and reviewed by The Wall Street Journal. It says implementing all the proposed debt relief measures would bring Greece’s debt to 74 per cent of gross domestic product by 2060, provided Athens fully implements its bailout program and if economic growth and government funding costs develop as expected.

Without these debt relief measures, Greece’s debt would be at 105 per cent of GDP under such a scenario, according to the document.

The measures proposed in the document mostly focus on loans given to Greece under its second bailout from the now-defunct European Financial Stability Facility. Greece still owes the facility EUR130.9 billion.

Average maturities on these EFSF loans should be extended by an average five years to 37 1/2 years, the document says.

Annual payments on the principal of the European Financial Stability Facility loans should be fixed at 1 per cent of GDP until 2050, while interest rates should be capped to 2 per cent of the loans until then, the document says. Any outstanding debt and interest payments would then be split into equal instalments to be repaid after 2050.

The document suggests two other measures. National central banks in the eurozone as well as the European Central Bank should give any profits they have made on Greek bonds back to Athens. Those payments would amount to around EUR8 billion, the document says.

On top of that, Greece should be allowed to use any leftover money from its third bailout of EUR86 billion to repay early loans from the International Monetary Fund. IMF loans carry higher interest than money borrowed from the eurozone bailout fund.

The document says that eurozone countries could choose to just implement some of the proposed measures. However, Greece’s debt will remain higher if not all measures are implemented.

Greece’s debt may rise to as much as 258 per cent of gross domestic product by 2060 or fall to as low as 63 per cent of GDP, according to an official analysis of the country’s debt trajectory that heralds tough talks ahead on potential measures to ease Athens’ payment burden.

The so-called debt sustainability analysis was drawn up by Greece’s European creditors. The wide divergences in the debt predictions are due to different forecasts on how much Greece’s economy will grow in the coming decades and how much money it can put aside to pay down debt.

Under all but the most optimistic scenarios, the document points to serious concerns over Greece’s ability to repay its debt, which stood at 176.9 per cent of GDP at the end of last year. The results of “this analysis point to serious concerns regarding the sustainability of Greece’s public debt in the long term,” the document says.

The document was distributed to officials from eurozone finance ministries Monday morning for discussion later in the day.

To reach a deal, the ministers will also have to bring on board the IMF, one of Greece’s biggest creditors. The IMF has consistently had more pessimistic forecasts for Greece’s debt ratio and demanded far-reaching measures to cut the country’s payment burden. Here it has clashed with Germany, which has opposed further debt relief.

“Today we will only have a first discussion on what, when, if and how the debt sustainability or debt relief measures could take place,” said Jeroen Dijsselbloem, the Dutch finance minister who presides over the group of ministers, on his way into Monday’s meeting.

The debt sustainability analysis looks at four different scenarios for Greece’s economy and assesses how the country’s debt-to-GDP ratio will fare in each case for the decades up to 2060.